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Company Fuel Tax Explained

Company cars are becoming more and more popular each year with fleet cars accounting for over 60% of all new car sales in the UK and 1 million of company cars registrations each year. Many employers provide to their employees not only the car, but also the fuel that they need for their everyday usage. However, employees need to be extra careful as they can be taxed if the employer provides any free fuel to them. This can happen when using a company fuel card and not repaying the private usage element or if the employer pays for employee travel between home and work.

The company fuel tax is also known as fuel benefit and it arises when an employer meets the cost of the fuel for a company car or van or the employee is reimbursed for the cost of any fuel used.

Who does this apply to?

The car fuel benefit tax is a tax charged for having free fuel for your company car. For example, if you are a salesman and your employer pays you fuel for your sales travels as well as your private use then the car fuel benefit tax applies.In the case that you are an employer and you want to give to your employees’ free fuel for their own private use then you will also get charged on the employees car fuel benefit tax.

It is important to mention that if the employee has free fuel for only a certain period of the tax year then the car fuel tax is paid for the full year.

It is important to mention that if the employee has free fuel for only a certain period of the tax year then the car fuel tax is paid for the full year.

Who doesn't this apply to?

There are some cases that the employees can be exempt if they use the fuel in one of the following ways:

Cars that are used for business purposes only

According to the government website a business journey can be any journey that is part of an employee duties for example a salesman travelling to visit a customer. Also the journey that an employee is doing in order to get to a temporary workplace.

Cars that are used for an employee with a disability

Cars that are adapted for an employee with a disability can be exempt if the only private use is for journeys between work and home or when the employee is travelling to work-related training.

When the employees pay their own fuel

In the case that the employees buy their own fuel or they pay back the employer during the tax year for the fuel that they have used, then they do not need to report or pay a fuel tax.

Pool cars

You don’t pay fuel tax on ‘pool’ cars. Cars that are shared by employees and are used only for business purposes and kept on the business premises.

What does the employer have to do

So, if there are not any of the above cases and the employees do not pay back for the fuel that they use privately during the tax year then the employer has to take the following actions:

  • Report on form P11D
  • Pay class 1A National Insurance on the value of the fuel benefit

For this reason, it is really important that the employers keep records of all their employee’s expenses and benefits.

How is company fuel tax calculated?

The fuel benefit is fixed every year and quite easy to calculate. For the year 2017/2018 the fuel benefit charge multiplier is £22,600 and it is going to rise in 2018/19.

In order to calculate your fuel benefit tax take your car’s CO2 emission band and multiply it by the fuel benefit charge multiplier. For example: 26% x £22,600 = £5876. Then multiply this amount by your marginal rate of tax, for example 40% x £5876 = £2350 will be the amount that you will have to pay.

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